July 2001 Newsletter

July 11 Module 5: Are you (or your parents) eligible for medicare and other health benefits?
Guest speaker : Sally Ann Brown, Utah Division of Aging and Adult Services
Ms. Brown will give a PowerPoint presentation on Medicare and related health insurance and programs and answer your questions.

Bring a friend to FPW and get a free financial planning book.
If you think you are too young to start planning for retirement, the earlier you start, the easier it is to reach your goal.
If retirement is not your main financial concern don't forget some of the excellent web resources to learn about other aspects of credit, money management, and investing:
http://www.money.com/money/101/lessons/

August 8 FPW: module 6 Employer Sponsored Retirement Plans
understanding the difference between defined benefit and defined contribution plans
How 401(k) and 403(b) plans work and how to decide on investment choices

other news items:
The Rebates are Coming! The Rebates are Coming!
Federal tax refund checks will be sent according to a staggered schedule, based on the last two digits of a person's Social Security number. For couples, the IRS will use the first Social Security number listed on a couple's tax return. The mailing of federal tax refund checks (there was no time to verify bank account information for direct deposit) will begin the week of July 23 and continue through the week of September 24. If you're planning to move in the next few months, be sure to notify the IRS so your check is not delayed.
The federal tax refund is a result of a change in the structure of federal marginal tax brackets. A new 10% marginal tax bracket was added, reducing the tax rate from 15% to 10% on the first $6,000 of taxable income for singles, $12,000 for married couples filing jointly, and $10,000 for heads of households. This translates into a $300 refund for single taxpayers, $600 for couples, and $500 for heads of households who earn the full amount of income in the 10% bracket for their tax filing status. For those who earn less than the full 10% tax bracket amount,
refund checks will be pro-rated. (Determine your taxable income by first subtracting your personal exemption(s) and your standard deduction or itemized deductions. This reduction in the tax rate half way through the year is the reason for the tax rebate checks.)
So what are you going to do with this windfall? Now is the time to make plans for wise use of this money because it is a significant enough sum to affect your future financial security. Below are several ideas to invest it for your future:
First, there is probably no better "investment" than to repay consumer debt (e.g., outstanding credit card bills). Paying off an 18% credit card is equivalent to earning a 25% return for a person in the 28% tax bracket (18 divided by 1-.28 (.72) = 25). That's because you'd have to earn a 25% return to be left with 18% after taxes. Unlike investments, like stocks and bonds, the amount that you'll earn by repaying debt is guaranteed and tax-free.
If you have no outstanding consumer debt (congratulations!), consider investing your tax rebates. A number of low-cost investment alternatives are available, including mutual funds that require $500 or less to open an account and hundreds of stocks with direct purchase plans (check the Web site www.netstockdirect.com). Don't think a $600 investment will really matter? Think again. With an 8% return, your money will double in nine years according to the Rule of 72. At the end of 20 years, your one-time $600 investment will grow to $2,796; $300 would be worth $1398. Check the Web site www.investing.rutgers.edu for additional investment ideas.
You could also use your rebate to fund your 2001 IRA. Check the calculators linked to the Web site www.rothira.com to determine whether a traditional or Roth IRA is a better choice based on your age, planned retirement date, and marginal tax bracket. You are allowed to contribute up to $2,000 maximum to any IRA or combination of IRAs. In the years 2002-2004, the maximum IRA contribution amount will increase to $3,000 and eventually rise to $5,000 in 2008 and later.
Another good option is to invest in yourself or, as economists like to say, "build your human capital." Take a course or other job training experience to improve your knowledge and skills. It could eventually lead to a raise or promotion and pay back your tuition payment many times over.# # #
Thanks to:
Barbara O'Neill, Ph.D., CFP, AFC, CHC, CFCS
Professor and Family & Consumer Sciences Educator
Interim Extension Specialist in Financial Resource Management
Rutgers Cooperative Extension

Cost of Raising Children
The average cost of rearing a child born last year to age 18 will be about $165,630 ($233,530 when adjusted for inflation), about a $5,000 increase over what it took to raise a child born in 1999. Annual child rearing expenses range from $8,740 to $9860 for a child in a two-child, married-couple family in the middle-income group. Read all about it:
Lino, Mark. 2001. Expenditures on Children by Families, 2000 Annual Report. U.S. Department of Agriculture, Center for Nutrition Policy and Promotion. Miscellaneous Publication No. 1528-2000.
Center for Nutrition Policy and Promotion
Suite 200 North Lobby
1120 20th Street, NW
Washington, DC 20036
http://www.usda.gov/cnpp/Crc/Crc2000.pdf

The U.S.U. Family Life Center, 493 North 700 East in Logan offers free financial and housing counseling. If you want help getting out of debt or simply organizing your finances and developing a realistic budget (or know someone who can use this help), call 797-7224 for an appointment. The FLC offers first-time homebuyer workshops the last Saturday of each month.

Funding for Financial Planning for Women (copying cost, postage, book purchases, etc.) is made possible by a grant from the Foundation for Financial Planning. www.foundation-finplan.org/